MARKETING AUDITING AND THE ANALYSIS OF CAPABILITY

Learning Objectives

1. The nature, structure and purpose of the marketing audit 2. The nature of the contribution made by the marketing audit to the overall management audit 3. The need for a regular review of marketing effectiveness and how such a review might be conducted 4. Why a regular review of strengths, weaknesses, opportunities and threats is necessary 5. How the marketing effectiveness review SWOT and TOWs analysis and the marketing audit contribute to the marketing planning process

What is marketing audit? The marketing audit is in a number of ways the true starting point for the strategic marketing planning process, since it is through the audit that the strategist arrives at a measure both of environmental opportunities and threats and of the organizations marketing capability.

Three major elements and potential benefits of marketing audit 1. The detailed analysis of the external environment and internal situation 2. The objective evaluation of past performance and present activities 3. The clearer identification of future opportunities and threats

The structure and focus of the audit In terms of its structure, the marketing audit consists of three major and detailed diagnostic steps: 1. The organizations environment 2. Its marketing systems 3. Its marketing activities

In conducting an audit, the strategist is concerned with two types of variable. First, there are the environmental or market variables, over which the strategist has little or no direct control. Second, there are the operational variables, which can controlled to a greater or lesser extent. This distinction can also be expressed in terms of the macro-environmental forces (political/legal, economic/demographic, social/cultural, and technological) that affect the business, and micro-environmental actors (customers, competitors, distributors and suppliers) who subsequently influence the organizations ability to operate profitably in the market place.

Regardless of which approach to categorization is used, the process and purpose of the audit is the same. It begins with an external audit covering the macro-environmental forces referred to above and the markets and competitors that are of particular interest to the company. The internal audit then builds upon this by assessing the extent to which the organization, its structure and resources relate to the environment and have the capability of operating effectively within the constraints that the environment imposes. In doing this, the auditor should not view the marketing audit and its results in isolation but, should instead give full recognition to the way in which it sits within the general framework of the overall management audit and alongside the audits of the other management functions. In this way, the strategist should arrive at an accurate measure not just of environmental opportunity, but also of the ability of the organization as a whole to respond effectively With regard to the question of how frequently the audit should be conducted, this is typically influenced by several factors, the most important of which are the nature of the business, the rate of environmental change and the planning cycle (annual, bi-annual). In so far as it is possible to provide a reasonably definitive guideline, it is that the organization should undertake a full audit at the beginning of each major planning cycle, supplemented by less intensive but more frequent reviews of specific or key areas as condition change.

The stages of audit 1. Pre-audit activities in which the auditor decides upon the precise breadth and focus of the audit. 2. The assembly of information on the area which affect the organizations marketing performance these would typically include the industry, the market, the firm and each of the elements of the marketing mix 3. Information analysis 4. The formulation of recommendations 5. The development of in implementation programme

In analysing information the auditor therefore needs to consider three questions: 1. What is the absolute value of the information? 2. What is the comparative value? 3. What interpretation is be placed upon it? It is generally acknowledged that, if these question are answered satisfactorily, the recommendations will follow reasonably easily and logically. The only remaining problem is then the development of an effective implementation programme. It should be apparent from the discussion that a marketing audit, if carried out properly, is a highly specific, detailed and potentially timeconsuming activity.

Reviewing marketing effectiveness Marketing effectiveness is, to a very large extent, determined by the extent to which the organization reflects the five major attributes of a marketing orientation, namely: 1. 2. 3. 4. 5. A customer-oriented philosophy An integrated marketing organization Adequate marketing information A strategic orientation Operational efficiency

Marketing effectiveness rating instrument (adapted from Kotler, 1997)

Customer philosophy 1. To what extent does management recognize the need to organize the company to satisfy specific market demands? To managerial philosophy is to sell existing and new products to whoever will buy them. Management attempts to serve a wide range of markets and needs with equal effectiveness. Having identified market needs, management focuses upon specific target markets in order to maximize company growth and potential. 2. To what extent is the marketing programme tailored to the needs of different market segments? Not at all. To some extent To a very high degree 3. Does management adopt a systems approach to planning, with recognition being given to the interrelationships between the environment, suppliers, channels, customers and competitors? Score

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Having conducted a review of marketing effectiveness, the marketing planner may decide that the results provide sufficient insight into the organizations strength and weaknesses. There is, however, a strong argument for viewing the marketing effectiveness rating view as the jumping-off point for a more detailed analysis of strengths, weaknesses, opportunities and threats.